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Trade of the Day: Seagate Technology PLC’s Island Reversal

Shares of Seagate Technology PLC (NASDAQ:STX) as a result of Monday’s big post-earnings rally is now back in the green for 2017. While STX stock remains in a choppy trading pattern, active investors now might have the winds at their back for a next leg higher.

STX Stock: Seagate Technology PLC's Island Reversal

Investors in this provider of data storage technology and solutions have been in a sea of pain over the past few years as the company has found itself in a growth slump. This latest earnings report, however, showed renewed hope for growth — particularly as the company discussed a possible product deal with Toshiba Corp.

Still, investors would be well advised not to get ahead of themselves just yet around STX stock, for it remains in a difficult spot.

This is where the multi-time-frame approach that I discuss each and every week day in this column once again provides us with great perspective and a well-defined process.

STX Stock Charts


Click to Enlarge

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

On the multiyear weekly chart, we see that after topping out in late 2014, STX stock proceeded to tumble more than 70% until finding a bottom in May 2016.

Although the stock then showed a strong rally, it promptly got rejected following the earnings report this past April. Although Monday’s 12.62% rally was promising and came on a big surge in volume, the stock through this lens remains stuck in a choppy period. This is to say that allocating fresh long-term capital to this stock at this juncture in my eye does not make much sense until the stock can show better strength and the fundamental turnaround story has better footing.


Click to Enlarge

Moving averages legend: red – 200 day, blue – 100 day, yellow – 50 day

Moving on to the closer-up picture of the daily chart however shows a somewhat more hopeful picture, within this nearer term time frame that is.

Here we note that after gapping lower following the July earnings report, STX stock largely remained stuck in a tight consolidation range as marked by the blue box. With Monday’s earnings report rally, the stock blasted out of this tight range, leaving it behind on an island of itself. Indeed technical analysis have a name for this type of price action and it is called an “island reversal.”

From here, active investors and traders could look to buy STX stock upon a break and hold above Monday’s highs around $40.90 for a move toward $44. Any strong bearish reversal back below $37 is a stop-loss signal.

Check out Anthony Mirhaydari’s Daily Market Outlook for Oct. 24.

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